Supreme Court says “patent troll” for first time in Cisco ruling

Good news: It’s now safe to say “patent troll” in polite company. For years, the trolls – which are shell companies that acquire old patents in order to shake down real businesses – have claimed the term has no place in legal discourse, and pushed for a variety of jargon-y alternatives like “NPE” and “PAE” instead.

Well, so much for that. On Tuesday, no less than Justice Antonin Scalia gave the term its proper place by including it for the first time in the Supreme Court lexicon, warning that a ruling “increases the in terrorem power of patent trolls.”

Scalia’s words (confirmed as a first by Professor Mark Lemley) came in a case in which a patent troll called Commil, controlled by an asbestos lawyer, is suing Cisco CSCO over a 2001 patent that describes methods of implementing wireless networking.

The case itself turned on an arcane point of patent law (see THE? next section if you’re into that sort of thing); the Supreme Court resolved it, in part, by instructing a Texas court to revisit a $67 million verdict against Cisco. But the case’s larger significance could turn out to be the Supreme Court’s explicit acknowledgement of trolls’ pernicious influence in the patent system.

Scalia’s troll comment came as part of a dissenting opinion, but the other judges likewise addressed the problem:

“Some companies may use patents as a sword to go after defendants for money, even when their claims are frivolous,” wrote Justice Anthony Kennedy for a 6-2 majority. “This behavior can impose a ‘harmful tax on innovation’.”

In response to the patent troll danger raised by Scalia, Kennedy suggested that other recent Supreme Court decisions, including one that makes it easier to stick trolls with legal bills, will address this. More broadly, the Cisco decision also comes as a time when Congress is trying to pass patent reform for the third time in five years; the previous efforts were largely stymied by trolls and trial lawyers.

Patent validity and infringing in “good faith”

For the Supreme Court, the Cisco case came as a bit of unfinished business related to a 2011 patent case about deep fryers called Global-Tech v SEB. The issue at stake was so-called “induced infringement,” which is when a company does something (typically selling or supplying a product) that leads others, like end users, to infringe a patent.

In the deep fryer case, the Supreme Court found that “induced infringement” rules aren’t as severe as for direct infringement. Specifically, it found that patent defendants can escape liability if they could show they did not know about a patent, or that what they were doing infringed on the patent. This amounted to a “good faith” defense that is not available for direct infringement.

Cisco, however, made a different argument: It claimed it should be off the hook for induced infringement so long as it believed, in good faith, that the patent was invalid. This amounts to saying, “We knew about the patent, and that what we were doing could infringe it – but we thought the patent was no good and would never hold up.”

Justice Kennedy, however, didn’t buy this argument and said it could not be squared with the so-called “presumption of validity” that has long attached to patents. He also suggested that companies confronting dubious patents had other avenues available by which to attack them, and so they do need a “good faith” defense for validity.

So what’s the upshot? Well, other than the words “patent troll,” the Cisco ruling is unlikely to move the needle much when it comes to patent policy. As respected patent scholar, Dennis Crouch, notes at PatentlyO:

This is a split decision for patentees. On the one hand, it pushes away an entire set of defenses to inducement. But, on the other hand, the court solidifies a high wall by requiring proof that an accused inducer have known that the induced acts would constitute infringement of the asserted patent claims

Meanwhile, the case will finally land back before a jury after a series of strange twists and turns. These include ill-advised comments about pork and Jesus by Cisco’s lawyers, which is what led the courts to review the case reviewed in the first place.

You can read the decision for yourself below (I’ve underlined some of the most relevant bits).

Good news: It’s now safe to say “patent troll” in polite company. For years, the trolls – which are shell companies that acquire old patents in order to shake down real businesses – have claimed the term has no place in legal discourse, and pushed for a variety of jargon-y alternatives like “NPE” and “PAE” instead.

Well, so much for that. On Tuesday, no less than Justice Antonin Scalia gave the term its proper place by including it for the first time in the Supreme Court lexicon, warning that a ruling “increases the in terrorem power of patent trolls.”

Scalia’s words (confirmed as a first by Professor Mark Lemley) came in a case in which a patent troll called Commil, controlled by an asbestos lawyer, is suing Cisco CSCO over a 2001 patent that describes methods of implementing wireless networking.

The case itself turned on an arcane point of patent law (see THE? next section if you’re into that sort of thing); the Supreme Court resolved it, in part, by instructing a Texas court to revisit a $67 million verdict against Cisco. But the case’s larger significance could turn out to be the Supreme Court’s explicit acknowledgement of trolls’ pernicious influence in the patent system.

Scalia’s troll comment came as part of a dissenting opinion, but the other judges likewise addressed the problem:

“Some companies may use patents as a sword to go after defendants for money, even when their claims are frivolous,” wrote Justice Anthony Kennedy for a 6-2 majority. “This behavior can impose a ‘harmful tax on innovation’.”

In response to the patent troll danger raised by Scalia, Kennedy suggested that other recent Supreme Court decisions, including one that makes it easier to stick trolls with legal bills, will address this. More broadly, the Cisco decision also comes as a time when Congress is trying to pass patent reform for the third time in five years; the previous efforts were largely stymied by trolls and trial lawyers.

Patent validity and infringing in “good faith”

For the Supreme Court, the Cisco case came as a bit of unfinished business related to a 2011 patent case about deep fryers called Global-Tech v SEB. The issue at stake was so-called “induced infringement,” which is when a company does something (typically selling or supplying a product) that leads others, like end users, to infringe a patent.

In the deep fryer case, the Supreme Court found that “induced infringement” rules aren’t as severe as for direct infringement. Specifically, it found that patent defendants can escape liability if they could show they did not know about a patent, or that what they were doing infringed on the patent. This amounted to a “good faith” defense that is not available for direct infringement.

Cisco, however, made a different argument: It claimed it should be off the hook for induced infringement so long as it believed, in good faith, that the patent was invalid. This amounts to saying, “We knew about the patent, and that what we were doing could infringe it – but we thought the patent was no good and would never hold up.”

Justice Kennedy, however, didn’t buy this argument and said it could not be squared with the so-called “presumption of validity” that has long attached to patents. He also suggested that companies confronting dubious patents had other avenues available by which to attack them, and so they do need a “good faith” defense for validity.

So what’s the upshot? Well, other than the words “patent troll,” the Cisco ruling is unlikely to move the needle much when it comes to patent policy. As respected patent scholar, Dennis Crouch, notes at PatentlyO:

This is a split decision for patentees. On the one hand, it pushes away an entire set of defenses to inducement. But, on the other hand, the court solidifies a high wall by requiring proof that an accused inducer have known that the induced acts would constitute infringement of the asserted patent claims

Meanwhile, the case will finally land back before a jury after a series of strange twists and turns. These include ill-advised comments about pork and Jesus by Cisco’s lawyers, which is what led the courts to review the case reviewed in the first place.

You can read the decision for yourself below (I’ve underlined some of the most relevant bits).